Into Earnings Season – More of The Same

Much as the OHFG investment team had expected, the government released inflation data has cratered in a symmetrical fashion over the last 12 months. Last week’s June CPI report showed inflation cooled to 3.0% y/y. This report is the smallest gain in more than two years. Core CPI did rise 4.8%, but this was also the slowest increase since 2021. Price pressures have eased, particularly in the goods sector, after peaking at +9.1% one year ago.  Since core inflation is still running above the Fed’s +2% target, expect policymakers to raise rates another 25 bps at the July 25-26 meeting.

The S&P 500 rebounded last week amid continued signs that inflation was easing ahead of the Federal Reserve’s next interest-rate decision scheduled for later in July.  Additionally, early bank earnings at  JPMorgan Chase (JPM) and Wells Fargo’s (WFC) Q2 results topped Wall Street’s views.  The benchmark S&P 500 index rose +2.4% to 4,505 from the prior week’s close of 4,399.

All sectors gained for the week, led by communication services‘ +3.4% increase and discretionary +3.3% rise. Technology, real estate, materials, utilities, industrials and health care all rose more than +2% each. Financials also saw an almost  +2% increase, while consumer staples and energy advanced the least at +1.2% and +0.6%, respectively.

Activision Blizzard (ATVI) lead the surge in communication services, with the company’s stock up +9.3% for the week. Microsoft’s (MSFT) acquisition of the video-game developer in a $68.7 billion deal moved a step closer to completion after a federal court judge denied the US Federal Trade Commission’s temporary injunction request seeking to stop the takeover. The FTC is batting below the Mendoza line in contesting mergers under the current chair, Lina Khan. The FTC said it plans to appeal the ruling.

Technology got a boost from a +9.4% gain in Salesforce (CRM), which announced plans to increase its list prices.  A +7% surge in Nvidia (NVDA) also helped technology stocks and semiconductors. Consumer discretionary’s rally was led by a +13% rise in Domino’s Pizza (DPZ), which announced an agreement with Uber (UBER) allowing US customers to place orders using the Uber Eats and Postmates apps.

Within consumer staples, PepsiCo (PEP) reported strong pricing in its earnings release and saw its shares rose +2.8% as it increased its outlook after logging higher fiscal Q2 results that topped market expectations.

In energy news, the International Energy Agency lowered its 2023 global oil demand growth forecast, citing “persistent” macro challenges, while the Organization of the Petroleum Exporting Countries raised its outlook amid higher use in China. Materials advanced for the week as the weaker dollar offset currently weak demand.

Some of the earnings scheduled for this week include Goldman Sachs (GS), PNC Financial Services (PNC), Morgan Stanley (MS), Bank of America (BAC), Bank of New York Mellon (BK), U.S. Bancorp (USB), Netflix (NFLX) and Tesla (TSLA). American Express (AXP), Lockheed Martin (LMT), Prologis (PLD), Johnson & Johnson (JNJ), United Airlines (UAL) and American Airlines (AAL) also report this week.

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Weekly Market Update 7-17-2023